UK firms dodge Labour tax raid with WFH roles abroad
UK companies are turning to work-from-home (WFH) South Africans and other workers in East Asia in a cost-cutting drive to dodge Rachel Reeves’ £20bn tax raid on employers and stringent workers’ rights.
Prime Minister Sir Keir Starmer has spoken about his determination to “put working people’s priorities first” while welfare cuts have been made to encourage inactive Brits back into the labour market.
But more services firms appear to be overlooking applicants at home in favour of hiring workers overseas to fill roles which may not be covered in data published by the Office for National Statistics (ONS), which this week showed UK unemployment to be at its highest level in over three years and vacancies dropping lower.
While employers have looked abroad to hire staff working in areas such as customer service, a new surge in companies specialising in recruitment of people in English-speaking countries suggest firms are looking to go offshore to avoid hefty employers’ national insurance contributions (NICs) bills.
Recruitment company The Legends Agency, which has seen revenues surge from £300,000 to £7.2m in a 12-month period, is one such firm that hires workers in South Africa before they are sub-contracted at UK companies in roles that British workers would otherwise fill.
Its London-based director, Alex Fenton, said Reeves’ business taxes had offered businesses like his an opportunity to grow, as foreign workers could provide similar contributions to British workers 6,000 miles away.
“This used to be only for big business,” Fenton told City AM.
“Now what’s happened to the small and medium enterprise (SME) market being priced out, you add that to the fact that you can get remote work, which has been proven to work in many instances, SMEs certainly can do it.”
The new tax havens benefit from WFH
The Legends Agency’s staff totals 1,000 people before passing them onto around 145 UK companies, which Fenton calculates could provide £9m in extra tax receipts if workers were based in the UK.
Employment taxes paid by South African companies to fund education are significantly smaller than in the UK, with a one per cent levy charged on workers earning more than around £20,700 a year
This compares to the UK’s sizeable 15 per cent rate on a salary threshold of £5,000 a year following last year’s Autumn Budget.
Another agency called Sauce boasts about helping a content marketing agency boost its revenues to $1m (£736,000) by searching for WFH employees overseas.
It said IT specialists and sales representatives working virtually in South Africa can earn up to 70 per cent less in wages as the cost of living across both countries differ dramatically.
The boss of a currency exchange platform, which supports firms working across borders but does not itself hire offshore home workers, told City AM he had seen a 43 per cent increase in overseas payments over the last six months.
“The feedback from many of my business clients is also to hire overseas remote workers when it’s feasible,” Tony Redondo of Cosmos Currency Exchange said.
“It’s partly down to taxes, partially down to the new Employment Rights Bill.”
Clashing work cultures and the pace of work
WFH South Africans at UK firms told City AM that they found some difficulties in clashing work cultures and the pace of work.
None spoke about their intention to move to the UK, with the government raising skilled worker visa salary thresholds as part of an effort to curb high levels of net migration and prevent more low-income workers from arriving.
Any further pick-up to the trend could impact London as Office for National Statistics (ONS) analysis in 2022 suggested London accounted for 81 per cent of the size of the UK’s service sector, which makes up nearly three quarters of the UK economy.
Analysis of jobs data by HR platform Employment Hero suggested that jobs growth in London is stalling, with a rise of just 0.7 per cent in payrolled employees in April.
The Treasury was contacted for comment.